Currencies have been moving in a risk-on formation, with the dollar, yen and Swiss franc weakening against most other currencies, with the commodity and many developing-world currencies outperforming. This came with S&P 500 futures rallying strongly, by over 5% to more than reverse the 2.9% closing loss the cash version of the index saw yesterday on Wall Street. European and Asian stock markets, along with oil prices, and most base metal and other commodity prices, have also racked up strong rebound gains. The massive $2 tln coronavirus stimulus bill in the U.S. looks near to being passed in the Senate. The Fed's ultra-aggressive pledge of unlimited dollar funding also appears to be having some success. The U.S. 2-year note yield dropped yesterday to a near seven-year low of 0.79%, which, although higher today, concomitantly put a lid on the dollar. The narrow trade-weighted USD index (DXY) dropped by about 1.3% in printing a four-day low at 101.17, extending the correction from the 38-month high that was seen last Friday at 102.99. EUR-USD and Cable concurrently lifted over 1.5%, to respective five-day and intraday highs at 1.0887 and 1.1690. AUD-USD which lifted by over 2% in making a four-day peak at 0.5976. The Aussie dollar has now rebounded by over 8% from the 18-year low it saw last week, at 0.5507. With oil prices posting a 5%-pus rally, USD-CAD turned lower, back below 1.4400 and tested yesterday's low at 1.4335. As for the coronavirus, more countries have been going lock-down, the latest of note being the UK, and the major question about how long it will be before something approaching normal economic activity resumes. Incoming preliminary March PMI survey data have and will continue to paint a grim picture of the economic consequences to date.

[EUR, USD]EUR-USD printed a five-day high at 1.0879, driven by a broad softening in the dollar. The Fed's ultra-aggressive pledge of unlimited dollar funding also appears to be having some success. The U.S. 2-year note yield dropped yesterday to a near seven-year low of 0.79%, which, although higher today, concomitantly put a lid on the dollar. The 10-year U.S. T-note versus the 10-year Bund yield differential has also fallen to its narrowest in six years, near the 110 bp mark, which is a positive for EUR-USD. The narrow trade-weighted USD index (DXY) dropped by about 1.3% in printing a four-day low at 101.17, extending the correction from the 38-month high that was seen last Friday at 102.99. With the Fed supplying unlimited dollars, we expect EUR-USD to remain underpinned.

[USD, JPY]USD-JPY has ebbed back while most yen crosses lifted, with the Japanese currency trading overall softer today amid a backdrop of rebounding stock and commodity markets. The massive global policy response to the economic consequences of containing the spread of the coronavirus, led by the nearly passed $2 tln fiscal rescue package in the U.S., along with the Fed's pledge of unlimited dollar funding, appears to be taking effect. As for the coronavirus, more countries have been going lock-down, the latest of note being the UK, and the major question about how long it will be before something approaching normal economic activity resumes. Incoming preliminary March PMI survey data have and will continue to paint a grim picture of the economic consequences to date. Japan's prelim March manufacturing PMI dove to a headline reading of 44.8 from 47.8.

[GBP, USD]Sterling, despite the UK's preliminary March composite PMI hitting a series record low (since January 1998) of 37.1 in the headline reading, has rebounded against the dollar as the Fed proceeds with unlimited QE, and other currencies following a phase of pronounced underperformance, which saw the UK currency last week hit 35- and 11-year lows versus the dollar and euro, respectively. Like other countries, the UK government has announced an aggressive stimulus package to counter the impact of virus-containing measures. The UK's one is billed as a "employment retention" coronavirus support package, which was detailed last Friday and which aims to keep the economy primed for a V-shaped rebound by paying up to 80% of employees pay in businesses that have been forced to suspend trade. Sterling proved to be vulnerable during the recent phases of acute risk-off positioning. The UK runs a relatively big current account deficit, and this exposes the currency during heightened risk aversion. Brexit -- with Boris Johnson's government still aiming to take the UK out of its special transition membership of the EU's customs union and single market at the end of the year, which would put a large part of UK trade on less favourable WTO terms -- remains a concern (we think Johnson will opt for an extension in the transition period). The BoE's Monetary Policy Committee meets on Wednesday and Thursday this week, when it will release the minutes from last week's decision to cut the repo to 0.1% and expand QE.

[USD, CHF]EUR-CHF remains settled under 1.0600 while remaining above the five-year low that was seen on March 9th at 1.0505. Safe haven demand for the Swiss currency has returned amid heightening concerns about the global economic disruptions being caused by efforts to contain the coronavirus. The U.S. in January added Switzerland to its list of currency manipulators. The move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy. The Swiss central bank kept its policy rates unchanged at -0.75% last week following its quarterly policy meeting, as had been widely expected. The SNB acknowledged the impact of virus developments, which also put upward pressure on the franc, and pledged that it will step up forex interventions to keep the currency under control. The central bank said growth will be likely be negative this year, and that it is considering to reduce the countercyclical capital buffer (the German equivalent of this was cut to zero yesterday). The exemption threshold for the negative rates will be lifted, and while the SNB stressed that the banking system has sufficient liquidity for now, policymakers also emphasized that it will ensure that this stays like that. There are reports that the SNB is in talks with commercial banks, and that there may be announcements on additional steps later in the week or over the weekend.

[USD, CAD]USD-CAD turned back below 1.4400 and tested yesterday's low at 1.4335. Oil prices, with which the Canadian currency correlates with, have steadied above the 18-year lows that were seen last week, but prices remained down by over 60% from the early January highs. Such a deterioration in prices marks a significant erosion in Canada's terms of trade. The Canadian dollar and other commodity currencies will continue to remain subject to volatility and overall underperformance as long as the coronavirus contagion remains in a state of increasing spread, though the plethora of global monetary and fiscal responses to the coronavirus induced economic dislodgements appear to be having some impact now in helping markets finds a sustainable reprieve.